Private infrastructure company GMR will replace state-owned Oil and Natural Gas Corporation (ONGC) in the proposed Rs 31,000-crore refinery and petrochemical plant at Kakinada in Andhra Pradesh. The exit follows the country's largest oil and gas producer's claims over the past year that the project was unviable. ENTRY STRATEGY # GMR will hold 51% in the Kakinada Refinery and Petrochemical Ltd (KRPL), the company implementing the project # No tax sops to be extended to GMR ONGC, which had a 46 per cent stake in the project through its subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL), said the refinery would have been non-profitable because the market for petroleum products in east Asia, which the refinery would serve, was not big enough. Also, with an existing Hindustan Petroleum refinery in Visakhapatnam and another planned, the market for the Kakinada refinery would be narrowed, ONGC said. ONGC had also asked the Andhra Pradesh government, with which it had signed an agreement in September 2006, for tax incentives of Rs 16,000 crore over eight years to make the project viable. The state government, however, declined. "The state government was not willing to give us that incentive, and we were not willing to go ahead without the incentive. So they wanted us out and we obliged," the ONGC official said. A GMR spokesperson in Bangalore said the company had not yet received any official communication from ONGC. Neither he nor ONGC disclosed how much GMR would pay ONGC. The Andhra Pradesh government is not expected to extend tax sops to GMR either, an ONGC official said. GMR will now hold 51 per cent in Kakinada Refinery and Petrochemical Ltd (KRPL), the company implementing the project. Finance company IL&FS and the Kakinada Seaports Ltd will hold 46 per cent while the Andhra Pradesh Industrial Infrastructure Corporation (APIIC) will have the remaining 3 per cent. The Andhra Pradesh government was keen that the refinery be set up in Kakinada because it wanted to build up infrastructure in the port town. Chief Minister YS Rajasekhar Reddy had urged Prime Minister Manmohan Singh and Petroleum Minister Murli Deora to convince ONGC to execute the project even though the state-owned exploration company declared the project unviable. The original 7.5 million tonne per annum (mtpa) refinery was replanned with a capacity of 15 mtpa in 2006 after the smaller refinery was found to be financially unviable. "Even the larger refinery was unviable. Refineries are not our business. We will continue to concentrate on exploration and production," said the ONGC official. Even though ONGC had found the refinery unviable, various companies such as the Hinduja group, Reliance Industries and Essar Oil had expressed interest in the project. The project was initially conceptualised by the then ONGC Chairman and managing director Subir Raha, who is currently employed by the Hindujas. The refinery is being planned in a special economic zone (SEZ) land for which has already been acquired. The refinery will also be part of a Petroleum, Chemical and Petrochemical Investment Region (PCPIR)